How is section 179 depreciation handled in 1065 and 1120S returns?
Partnerships and S corporations that sell or otherwise dispose of property for which the section 179 expense was previously claimed and passed through to the partners or shareholders must follow certain requirements to report the transaction. Partners and shareholders who receive a Schedule K-1 showing such a disposition must also follow certain instructions to report the transactions.
Partnerships and S corporations do not report these transactions on Form 4797, 4684, 6252 or 8824. Since it must be determined whether or not any income must be recaptured from the 179 expensing, a K1_179 for each partner or shareholder will generate and can be taken to the individual return for reporting based on the partner’s/shareholder’s proportionate share.
All details of the sale or other dispositions must be separately reported on the partner's or shareholder's K-1 based on their proportionate share including:
In an individual return, this information is used to complete the 4797 screen. Part IV of that screen shows data entry for the Section 179 recapture.
- Description of the property.
- Date the property was acquired and placed in service.
- Date of the sale or other disposition of the property.
- The gross sales price or amount realized.
- The cost or other basis plus the expense of sale (reduced as explained in the instructions for Form 4797, line 21).
- The depreciation allowed or allowable, determined as described in the instructions for Form 4797, line 22, but excluding the section 179 expense deduction.
- The section 179 expense deduction (if any) passed through for the property and the partnership's or S corporation's tax year(s) in which the amount was passed through.
- If the disposition is due to a casualty or theft, a statement indicating so, and any additional information needed to complete Form 4684.
- If the disposition was an installment sale made during the tax year reported using the installment method, any information needed to complete Form 6252. Separately report all payments received for the property in the following tax years.
- If the disposition was a disposition of property given up in an exchange involving a like-kind property made during the tax year, any information needed to complete Form 8824.
If the disposition was involved in a casualty/theft, installment sale, or a like kind exchange, screens 4684, 6252, or 8824 may be needed in addition or instead of screen 4797. The preparer of the individual return can make this determination based on the information provided.
- Note: The FOR box only lists certain forms, however, the recapture will still be calculated if no entry is made in that drop list (that is used when directed to a Schedule C, E, F, or 4835 only.